Top Gas ETFs to Buy in 2022 with Soaring Gas Prices
All anyone wants to talk about anymore is the soaring price of gasoline. After all, the cost to fill your tank has never been higher. With industry profits piling up, get your share with the best gas ETFs to buy before the second half (2H) of 2022.
First, the pandemic severely strained the industry as demand fell off from global lockdowns. As a result, over 100 oil and gas companies went out of business.
Then, as the economy reopened and demand started catching up, Russia’s invasion of Ukraine stoked a fire under an already strained market. So, demand is outpacing supply as nations look elsewhere to fill the supply gap left by Russia’s massive presence in the commodity market.
Nonetheless, gasoline is essential to keep the economy running smoothly. You need gas for fuel to get to work and back. Not to mention, businesses rely on gas for transporting goods, which influences prices. To grab your piece of the rising energy costs, below are the top gas ETFs to buy in 2H of 2022.
What Are the Best Gas ETFs to Buy Right Now?
The top gas ETFs to buy are outperforming the market right now as soaring energy costs boost profits. For example, Natural Gas Futures (NG1) are up over 120% YTD and almost 200% over the past year.
Meanwhile, all major indexes are down significantly this year, with the Nasdaq 100 Index (NDX) slipping almost 30% YTD. On top of this, researchers at J.P. Morgan predict gas prices could remain elevated “even as far back as 2024” as supply disruptions will be hard to overcome.
No. 3 Barclays iPath Series B Bloomberg Natural Gas Subindex (NYSE: GAZ)
- YTD Return: 124%
- Expense Ratio: 0.45%
Although the Natural Gas Subindex is set up as an Exchange Traded Note (ETN), it can help you gain exposure to the surging gas market. An ETN differs from an ETF in that the fund consists of unsecured debt notes rather than holding a group of stocks.
The GAZ ETN seeks to replicate the returns of the Bloomberg Natural Gas Subindex by investing in futures contracts. That said, the ETN does not pay a dividend. Therefore, GAZ is best as a short-term tool.
Since the ETN is not tied to any companies, only futures, it can carry additional risks. For example, investors are left with little or nothing if the issuer defaults. In comparison, ETFs hold several companies, helping to diversify and spread risk.
At the same time, the ETN moves alongside the price of natural gas contacts. So, if you are looking for direct exposure to gas prices, the GAZ ETN may be for you.
Keep reading for more on gas ETFs to buy.
No. 2 United States Natural Gas Fund (NYSE: UNG)
- YTD Return: 128%
- Expense Ratio: 1.11%
The United States Natural Gas Fund is another way investors can invest in natural gas prices without physically trading futures. For one thing, UNG is a commodity pool. Or in other words, it pools investor money to invest in futures, swaps and forward contracts.
The fund aims to give investors access to daily changes in natural gas deliveries at the Henry Hub, a distribution center. As a result, the daily changes resemble changes in natural gas prices.
However, since management is consistently active, it will cost more to invest. Though the higher expense is not slowing UNGs momentum, up close to 130% YTD. Likewise, UNG is more geared for short-term trading as it holds near-month contracts.
No. 1 United States 12 Month Natural Gas Fund (NYSE: UNL)
- YTD Return: 113%
- Expense Ratio: 0.90%
Similarly, the United States 12 Month Natural Gas Fund is a commodity pool targeting the price of natural gas. But, UNL differs in that it holds futures contracts for the nearest 12 months.
In other words, UNL buffers itself from short-term movements. As a result, investors can gain exposure to changes in natural gas prices with less risk than short-term contracts.
If you wish to capture your piece of the soaring energy prices but want less risk of contango (higher spot price), UNL may be a better choice.
Best Leveraged Gas ETFs to Buy
To maximize your returns, you can opt for a leveraged ETF to multiply the changes in an underlying index. For example, the ProShares Ultra Bloomberg Natural Gas ETF (NYSE: BOIL) targets to return 2X the daily performance of a natural gas index.
As a result, investors can earn double the daily returns of natural gas changes. With this in mind, the BOIL ETF is up 322% in 2022 alone.
However, there is a significant risk of investing in leveraged ETFs. Though you can earn double the returns, you can also double your losses. Investing in these funds is only recommended if you are comfortable with the significant fluctuations.
Best Inverse (Short) Gas ETFs to Buy
For those that think gas prices will ease soon, finding an inverse gas ETF to buy in 2022 may be for you. Or, if you have earned a pretty penny on gas and oil stocks already, you may want to protect your downside.
Nevertheless, the ProShares Ultrashort Bloomberg Natural Gas ETF (NYSE: KOLD) is a way to earn (-2X) the daily performance of a natural gas index.
In comparison, the KOLD ETF is down 90% YTD while natural gas prices soar. So, it gives you an idea of how quickly earnings can dry up in these types of investments.
What Gas ETFs to Buy for Passive Investors
The funds listed above are the best gas ETFs to buy for capturing the explosive rise in gas prices. But, for passive investors, these may not be the best option. For one thing, the gas and oil market can change rapidly.
During the pandemic, oil prices plunged below $0 for the first time. Then, two years later, we are looking at record high prices of over $130. As a result, oil and gas ETFs are having wild swings.
Nonetheless, research from J.P. Morgan shows the cost burden of higher gas prices is around $7 billion per month. As a result, consumers have less to spend in other areas of the economy. We already see the evidence with companies like Walmart (NYSE: WMT) and Target (NYSE: TGT) missing earnings estimates while blaming transportation costs.
In short, profits are being pulled from other parts of the economy to compensate for the lack of supply and rising demand. With this in mind, the energy sector looks ready to continue its run.
The Energy Select Sector SPDR Fund (NYSE: XLE) is an excellent option for passive investors looking to gain exposure with less risk. The XLE ETF is up 48% YTD while investing in top gas and oil companies like Exxon Mobile (NYSE: XOM). No matter your investing style, with the price at the pump holding steady, these are the top gas ETFs to buy this year to get your share.
About Pete Johnson
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.